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Peninsula Energy Ltd Funding To Drive Lance Uranium Project Expansion

Peninsula Energy Ltd (ASX:PEN) has raised $15 million in funding from its major shareholders, Resource Capital Fund and Pala Investments Ltd to drive expansion and reduce future cash costs by US$9-10 a pound at its producing Lance uranium projects in Wyoming.

In addition, it has a term sheet in hand for a streaming financing facility for US$25 million for Stage 2 expansion at Lance that is signed and due diligence is at an advanced stage.

The Lance Projects development plan envisages a three stage ramp-up strategy:

- Stage 1 - production rate of between 500,000 and 700,000 lbs U3O8 per annum;
- Stage 2 - production rate of 1,200,000 lbs U3O8 per annum; and
- Stage 3 - production rate of 2,300,000 lbs U3O8 per annum.

With these announcements today, Peninsula shares are out of a suspension on the ASX.

Funds raised will be used for general well field development activities at the Lance Projects, resource development drilling, final stage 2 engineering design, feasibility studies at the Karoo Projects in South Africa and for general working capital purposes.

Convertible loan agreements

Under these agreements, RCF VI and Pala (Lenders) have each provided Peninsula with a convertible loan facility, with participation in proportion to their existing shareholdings in the company.

Resource Capital Fund VI has a stake of 21.6% and Pala Investments a 12.2% shareholding in Peninsula, respectively.

The US$15 million total loan amount is comprised of a US$9.63 million convertible loan provided by RCF VI and a US$5.37 million convertible loan provided by Pala.

The Lenders may elect to convert all or part of the principal amount of the convertible loans (including any capitalised interest) into ordinary shares at any time prior to maturity at a conversion price that is the lower of $0.80 per share or the price of any equity raised prior to repayment.

The Convertible Loans will bear interest at the rate of 8% per annum, payable quarterly in arrears in cash or shares at the Lenders election.

Maturity date of the Convertible Loans is 22 April 2017.

An arrangers fee of 2% of the amount available under the Convertible Loans is also payable in cash or in fully paid ordinary shares using a conversion price of $0.80 per share.

Planned Revenue Streaming Facility (RSF)

The RSF will allow commencement of Stage 2 development at the Lance Projects. This will include the engineering and construction of the Stage 2 Central Processing Plant (NYSE:CPP), increasing the ion exchange capacity and bringing the elution, precipitation, drying and packaging processes in-house.

Significantly, this phase of the expansion is forecast to reduce cash operating costs by US$4-5/lb U3O8.

Additional Stage 2 construction, funded by the RSF, will include a further seven header houses and associated wellfield production units. Ramp-up to Stage 2 production rates are forecast to further reduce cash operating costs by US$5-6 per pound U3O8.

Expansion of well field capacity in Stage 2 has been timed to coincide with the ramp-up in delivery commitments under existing and expected new long term uranium concentrate sale and purchase agreements.

Board changes

Peninsula has appointed highly regarded mining executive Mark Wheatley as a non-executive director with extensive uranium and ISR experience. Neil Warburton has retired from his role as non-dxecutive director to pursue other business ventures.

John Harrison, currently a non-executive director will replace Richard Lockwood as non-executive chairman who is experiencing increased time pressure from his other business commitments. He will remain as a non-executive director of Peninsula.

Analysis

Peninsula currently has 75% of Stage 1 and 54% of Stage 2 production over the next 10 years committed under five term agreements with investment grade US and European utilities.

Peninsula currently has 7.9 million pounds of U3O8 under contract with major utilities located in the United States and Europe.

Projected revenue under these existing long term contracts has expanded to US$440 million. These contracts provide a large earnings stream to the company whilst allowing it to retain significant quantities of planned U3O8 production for future contracting during periods of anticipated improved uranium prices.

Expansion to Stage 2 will generate increased operating margins, (both in aggregate and on a per pound basis), and it is projected that the Company will be profitable at Stage 2 steady state production.

The strong support from major shareholders RCF and Pala is indicative of the future growth in Peninsula's future EBITDA in Stage 2.

The Lance Projects have a minimum mine life of at least 20 years, underpinned by 53.7 million pounds, the largest uranium ISR JORC-Code compliant resource in North America.

The weighted average delivery price for the five contracts over the next 10 years is US$56/lb U3O8 and at steady state production rates the Stage 2 expansion of the Lance Projects is forecast to reduce all-in sustaining cash costs from US$41/lb to US$31-32/lb.

Production ramp up at Lance continues with a 3.3% average daily head grade increase over last 40 days.

The Board changes provides a strong platform to expand and support MD Gus Simpson as the Lance projects move into a higher production gear.

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